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CA Intermediate · Corporate and Other Laws · Prospectus and Allotment of Securities

Sundaram Foods Ltd, a public company, has allotted shares to Meera. Later Meera discovers that the application money received in the issue was not kept in a separate bank account as required, and shares were allotted before the minimum subscription was received. Which statement is correct about the money received on applications?

Application money must be kept in a separate account with a scheduled bank and cannot be used until shares are allotted and the statutory conditions, including receipt of minimum subscription, are met. The company cannot use it for working capital or preliminary expenses before allotment.

  1. AIt may be used freely by the company for working capital until allotment
  2. BIt must be kept in a separate bank account in a scheduled bank and cannot be used until allotment is made and the statutory conditions are metCorrect
  3. CIt must be paid to the Registrar of Companies on the date of allotment
  4. DIt may be used to pay the company's preliminary expenses before allotment

Explanation

Application money must be held in a separate bank account with a scheduled bank. It can be used only for adjustment against allotment or for repayment, after the statutory conditions such as minimum subscription are satisfied. Use for working capital or preliminary expenses before allotment is not permitted.

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